Hiring a CPA

In the course of running a business, usually there comes a time when it is necessary to hire an accountant. While you may feel as though your company cannot afford to hire a CPA, it is often better to make an investment before you need to hire one as opposed to waiting until you desperately need to. Here are just a few ways to identify when it’s time to hire a CPA.

Your Business Always Owes Back Taxes

Notice that you always owe money at the end of each year? Perhaps you are doing something wrong. Hiring a CPA will not only help you manage your budget better throughout the year but it will also help you with your end of the year taxes.

You Never Have Money To Pay Your Employees

Being unable to pay your employees could literally break your company into pieces. In a generation where practically everything is accessible online, when you choose not to pay your employees (or just can’t afford to) you can almost always expect online backlash.

You Don’t Know How to Manage Money

Don’t know how to manage money? Now more than ever is the time for you to invest in a CPA. While a CPA can’t make you manage money well, a CPA can easily guide you in the right direction to insure you are making good decisions for not only yourself but also for your business.

You want to Improve Your Credit Rating

Improving your credit rating can be a daunting tax especially if you don’t really know what you’re doing. Hiring a CPA can help you improve your rating by making sure you pay all of your bills on time. There are also several other tactics that CPAs can help you with in order to make sure our credit rating gets better before it gets worse.

Reducing Debt

Getting out of debt can be extremely challenging, especially if you don’t know how to negotiate with creditors. Serving as the middle man between you and creditors will not only save you time but is also one of the greatest assets that CPAs bring to the table.

Image credit: Corporate Traveller

When it comes to businesses accounting methods, they have the option of going with the cash method or the accrual method. Both methods are acceptable yet they both affect you differently when it comes time to file your taxes.

The Cash Method

Most small businesses use the cash method. This method means they do not count the income until the money has actually been received and they do not document expenses until they have been paid.

The Accrual Method

The accrual method means that you document income when an order is placed and you document expenses when a service is purchased. You do not have to wait for the money to be paid in order for it to be documented in your finances.  When using the accrual method it can be hard to document when a sale or purchase has been made.

Which Method to Use

If you have a small business that makes less than $5 million annually, you can go with either method. However, if your business makes more than $5 million annually or you have more than $1 million in inventory annually you have to choose the accrual method.

How Taxes Work

Regardless of which method you are using, you have to only document the sales and expenses that took place in the current tax year. Therefore, when using the cash method you would not be able to claim everything because they can only be documented when money exchanges hands. However, with the occur method you would be able to claim everything since you record your transactions when they occur.

Remember we are Bellevue CPAs and a Redmond CPA firm!

Property rented for less than fifteen days. Any time you leased your property for less than fifteen days total in the past year, you don’t have to file any of your rental revenue. If this is the scenario, then the real estate property is going to be considered personal for taxation considerations, and on Schedule A of Form 1040, it is possible to deduct any of the property associated expenditures as personal.

Employing Your Holiday Home as a Part Time Rental

Personal use test. It’s important to work with some type of numeric formula to determine the total number of days during which the rental property was used for personal use. That is the personal use test. How you deduct your rental expenses is going to largely be determined by whether or not the personal use test is satisfied. Finding out the actual quantity of days in the past year in which the real estate property was leased out at fair market value is the initial step in calculating the personal use test. The next step is to multiply that number of days by ten percent. We will label the outcome the “total days rented” or “TDR” for short. The next stage will be to figure out how many days the rental property was employed for private use. We can label this “personal use days” or “PUD” abbreviated. Look at the table below for a vision of the personal use test.

NOTE: “Personal use” consists of use by you, any other owners of the home and property, plus the families of all individuals who own the property, unless of course your family member is paying out rent at fair market value.

If test is satisfied. If the personal use test is satisfied, you will deduct your rental expenses only to the extent of the rental income. A net rental loss will not be attainable, but when there are any additional expenditures you do not write off this year, they can be moved forward to later years, provided that there is an adequate sum of rental earnings in the tax year in which you claim them.

If test is not satisfied. Your own leasing costs will never be restricted by the rental income if the personal use test is not satisfied. You could deduct your rental costs and also have a net rental loss. There could be a few passive activity rules, however, which may still restrict the rental loss tax deduction.

Computing all of your rental expenditures. A number of expenses should be allocated between leasing and personal application. These include expenditures that will have already been charged no matter the use, such as real estate taxes and mortgage interest. Find out the whole number of personal use days. Then, you will need to determine the total quantity of TDR. After that, divide rental days by the sum of PUD and rental days. The end result is the rental percentage. Finally, you have to multiply the total cost of your expenses by the leasing percentage that you have established, and then the result will be the rental deductible part.

Leasing a Section of Your House

You need to expressly allot all your costs in between private usage and leasing use if you rent out a part of your own personal home. The IRS allows a little versatility with the method you employ; just make sure it’s consistent from year to year. Some people choose the option of taking the number of rooms within their residence along with the number of rooms within the home, and divide them. Dividing the rented sq . ft . by the residence’s total sq . ft . is another option that lots of people go for. You’ll end up with rental costs and personal costs. Those allotted to the leasing income can be deducted as such, and you can use Schedule A of Form 1040 to deduct what’s left.

Bothell CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is the owner of his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.

For more information on rental property deductions check out this video from Huddleston Tax CPAs:

Research Research Research

Dentists must not rush into a purchase, and need to manage their expectations, understanding that the process will take some time. There is no need to hurry through important steps and be impatient. Buying the right dental practice for you matters more than closing a deal quickly when the first opportunity presents itself.

Choosing the Best Location

Where would you like to live? Being a practice owner is a big commitment, and being a part of the local community is a big part of that. Establishing a connection with the locals will help your business succeed. And ensuring a shorter commute could also pay off. No one wants to face a long round-trip commute year after year.

What sort of community is the right fit for you and your family? Do you like the suburbs, or do you want to live in more of a rural community? Consider where your competition is. This is a major indicator of your likelihood of running a successful dental practice. Will your spouse be able to find work? Will your kids end up in a school district that will nurture them and grant you piece of mind?

Determine the Ideal Practice for You

Lay out a working business plan. What size of dental practice do you anticipate? And do be careful to leave room for growth. Do you want to practice general dentistry or do you prefer an expensive practice that focuses on cosmetic dentistry? Do you prefer a long client list with a five-day-a-week-schedule? Or do you want a smaller practice, with a slower pace, that will allow you to work fewer hours? Naturally, these decisions will affect your finances and may dictate your level of day-to-day stress too.

Seek a Valuation

Get a CPA or CVA to perform a business appraisal on the proposed business purchase. They can find out how much other dentists have paid for similar practices. This will help ensure you are within the means of your projected income.

Establish a Support Net

Just as your business cannot operate without the support of patrons, you’ll never realize your full-potential without the aid of experienced professionals. In the long-run, investing in advisors will save you a lot of trouble. Here are some people you might want to have on your side:

• A tax accountant who has experience advising dental care practices and other small businesses on reducing tax burdens and remaining tax compliant. You will want an accountant who does more than tax returns. Seek a certified public accountant to advise you on how to structure your business entity (S-Corp, C-Corp, LLC, PLLC, Sole Proprietorship).
• A Bookkeeper that is already well-versed in a bookkeeping system such as Quickbooks. A certified Quickbooks ProAdvisor means they are certified by Quickbooks as knowledgeable with the accounting program.
• An attorney to protect your interests and review documents.
• A consultant for your new dental practice would likely prove valuable in the long run, helping you keep on schedule and achieve goals.
• Establish a relationship with a bank early on. Getting prequalified, and ready to finance, will help you gain a handle on how much you can afford when putting in an offer.
• An insurance agent will evaluate risk and assess the value of the business to see exactly how much coverage you’ll need.
• It is smart to seek the counsel of a mentor that has experienced similar circumstance to those you’ll face.
• A marketing expert-preferably someone with knowledge of internet marketing.

Build a team. Do your research. Trial and error is not a reasonable strategy.

Tax CPA John Huddleston is the author of the Self-employment Tax Guide which is a free resource for small business owners and the self employed for tax saving strategies and tax filing requirements. Mr. Huddleston has a law degree and masters in tax law from the University of Washington School of Law. He has been a guest tax expert on the radio. He advises small businesses in the Seattle Bellevue Tacoma & Everett area on various tax and accounting issues. His firm, Huddleston Tax CPAs, also provides tax preparation service, quickbooks consulting, business valuation, general accounting and bookkeeping service. Profile information on CPA John Huddleston and the CPAs employed by Huddleston Tax CPAs is available at the profile tab. Seattle CPA John Huddleston is a frequent publisher of tax saving ideas.

An Offer of Compromise (OIC) is a tax debt settlement offer from the IRS to taxpayers, either an individual or a business unable to repay in full their tax debt. There are certain strict criteria that spell out eligibility to file for the OIC. And if you meet these criteria, you will need to fill out Form 656 and submit a host of documents to be evaluated for an offer.

Preparing the Form 656

You need to fill out a Form 656 to file for an OIC in two circumstances. In the Doubt as to Collectability situation, there exists a reasonable amount of doubt over your ability to pay the full amount of your claims within the specified period. In the Effective Tax Administration case, your contention for a tax settlement is that paying the full amount of the dues will create economic hardship for you.

If you meet the above criteria, here are some considerations for when you begin to complete the Form 656:

• All persons submitting the offer should enter their social security numbers.

• You will have to provide the names of both the parties in the case of a joint offer for joint liabilities. When you jointly owe a liability and both you and the other party are submitting for an OIC, then do so on Form 656, just one form. Now you might owe a liability, such as employment taxes for yourself and hold other liabilities, such as income taxes, with another person. If you are submitting this offer solely this form, then you need to list all liabilities on one of Form 656. In case both of you want to submit this application, then you have to include all tax liabilities on your Form 656 and the other person must show only the joint tax liability on their Form 656.

• You need to supply the relevant information In each field on the Form 656.

• You need to show the employer identification numbers of all businesses, except corporate concerns, that you own, either in whole or in part.

• If your claim to an OIC is based on a Doubt as to Collectability, you need to also furnish a completed Form 433A if you are an individual taxpayer and Form 433B if you are a business taxpayer.

• If your claim to an OIC is based on Effective Tax Administration, then in addition to submitting a Form 433A or 433B, you’ll also complete the details in the “Explanation of Circumstances” field. You may include supplementary bits of relevant information on attached sheets together with your social security and EIN.

• In providing the total amount of your offer, you cannot include a sum that the IRS owes back to you or any of the amounts that you may have already paid in taxes.

• All persons submitting the offer should apply their signature on the 656 Form and supply the date. They must also give the names and titles of authorized corporate officers, trustees, Powers of Attorney, and executors where requested.

• Ensure that you provide the name and if possible, the address of the OIC preparer.

• You might want the IRS to contact a family member, a friend, or any other acquaintance to discuss your case so that they might understand your state of affairs better. In that case, you need to mark the “Yes” box in the “Third Party Designee” field. Additionally, if you would like a CPA, your attorney, or an enrolled agent to represent your case, you need to provide the 2848 Form and submit it along with your offer. to improve the chances of your offer being accepted. And after you’ve compiled all the documents for submission, be sure you make hard copies or electronic copies for your records. Apart from these documents, you may also submit documents that support your claim for the offer.

Focus on Detail

Filing for the Offer in compromise is complicated. Make sure to spend ample time on Form 656 and provide the entire set of supporting documents to strengthen your chances of your offer being accepted.

visit the guides at:

Seattle Business Valuation
Seattle Tax Debt Relief
Seattle Offer in Compromise

When developing a startup business it is critical to consider the bookkeeping procedures and practices you will set in place at the very beginning of things.

Deciding upon a Software Package

When beginning your company you may use a simple spreadsheet to monitor your business income and expenses. At some point, though, you might wish to think about adopting a small-business accounting software package like QuckBooks or Sage Peachtree to manage your company’s financial transactions. As a new start-up grows, the paperwork involved in paying expenses and collecting income can prove too overwhelming without the help of a accurate and reliable financial database. A good small business accounting software will also streamline tax preparation, inventory recordkeeping, and payroll records.

Consider your future accounting needs. There are accounting software packages that focus on project accounting, and there is bookkeeping software that caters to real estate/real property (like fixed income accounting). Specialized bookkeeping software is as a rule more costly than the more generalized software packages which are perfect for sales of goods, but if you can anticipate where your business is headed, you might select the appropriate accounting software at the very beginning can save time and money in time.

How to Choose a financial record keeping Method

As a small business owner, you have some leeway in just how you document your financial comings and goings. If you are no big corporation, it isn’t necessary for you to produce statements in accordance with Generally Accepted Accounting Principles, or GAAP. For instance, you might prefer recording your income whenever you make a deposit into your banking account and document the expenses at the time when you write a check to cover an expense. Accountants refer to this accounting method the cash method of accounting. While this means of bookkeeping does not follow GAAP, it is more than adequate for a smaller start-up.

As your business grows, then, you may decide to adopt a more advanced financial recordkeeping process. At this point, you may want to adopt the accrual method of accounting. Under this model, you record your income when you have the invoice, rather than waiting to get paid for that service. You recognize a business expense when you receive a bill from a supplier, rather than waiting until you pay the supplies. This method of accounting is preferable because it allows you to more closely match the income your business generates to the expenses you incurred to earn it. For example, you may have received an advanced cash payment before you provided services to a customer. You may want to wait and record that amount as revenue during the year you actually provided the services, rather than the year in which you received the cash.

As for income taxes, the IRS is flexible in allowing you to choose an accounting method. According to its rules, you may use any method as long as it clearly reflects income and expenses and you treat all items of income and expenses in the same manner from year to year. Though, if you purchase, sell, or produce product, special rules apply on when to use the accrual method. If your business handles inventory in whatever way, you should likely consult your accountants to find out when to use the accrual method.

A Budget that Works for You

You’ll also want to make certain that the accounting software package you choose will enable you to determine a budget plan.

Measuring Your Performance

Most accounting software packages will enable you to draw comparisons between your small business’s current-year financial statements to those from prior years. This process will help you to see trends in your business. It also provides insight on how you can add to its success.

It is critical to get to the bottom of trends so that you can have an accurate picture of your business’s performance and to make important financial decisions. For example, if your revenue increased by 30-percent for 2011 over that from 2010, but your expenses only increased by 10 percent, this suggests that your business model could be hyper-efficient. Were some revenue items duplicated? Or, if your revenue increased by 10-percent in 2011 over that from 2010, but, to do so, your expenses increased by 30-percent, this suggests some inefficiency in your model. Are you investing in assets with the greatest return on investment? Or, did you forget to record invoices for some of the services provided during the year?

You can visit the Self Employed Tax Guide in the Huddleston Tax Library at:

Self Employed Tax Guide Bothell
or
Self Employed Tax Guide Seattle

When pursuing an offer in compromise of IRS back tax debt, you’ll want to submit the 656 form 433b, unless you are a sole proprietorship and thus you’ll complete form 1040 to account for profits and losses. The form 433-A provides the IRS with justification in determining the lowest possible offer amount you can make in seeking offers in compromise.

How to complete 656: Form 433b

Section 1: This section requests basic information, for example your EIN, the identity of partners, officers, and LLC members.

Section 2: Next, the form asks for business asset details. This would include the company’s banking accounts, investment accounts, and notes receivable. Then it requests information on the business’s real estate, vehicles, and equipment. However, in relaying their worth, the internal revenue service permits you to exclude your equity in any income producing assets.

Section 3: This section requests your business income. The form requests your average gross monthly business income based on documentation from the most recent 6-12 months. Now, if you also provide a profit and loss report for the period, you can present an average amount of profit from these figures instead.

Section Four is where you should relay the specifics of business expenses. This would be details such as, your average gross monthly expenses of the most recent period 6 — 12 months (all verified and supported). And, if you will provide a profit and loss report for the period, you can give an average amount here.

Calculating the offer

There are two ways of calculating the offer amount here, this is dependent on whether it is your intention to pay the offer within a period of 5 months or extending passed a 5-month period. If you arrange to pay the offer in full within 5 months, the formula for repayment is as appears below.

[ 48 x Business income in excess of expenses] Total available assets

If you opt to pay beyond a five-month period, your minimum offer increases to the following amount:

[Business income in excess of expenses x 60] Total available assets

Whichever method you use, you must exceed zero.

Section 6

Lastly, the form 433-B asks for certain miscellaneous info this uses to consider the settling of your debt. As an example, this section queries whether your company has claimed bankruptcy. This question is important as your business is ineligible to receive an offer in compromise on its tax debt currently in a bankruptcy proceeding. This sectionalso asks if the business has any other affiliations, asks if any related parties owe money to your business, and seeks to find out whether your business has been party to any litigation. Also, it asks whether the company has unloaded any assets in these last 10 years at a discount.

You can discover more of our offers in compromise guide at
Kent CPA
Accountants & Tax Preparers in Kirkland
Accountants and Tax Preparers

As a business owner, you are permitted to only deduct for your traveling expenditures if the travel expenses are standard and essential in providing services to your small bussiness’ customers. Business travel expenses you could very well categorize lavish or extravagant, are not going to be eligible for a write-off. While not guaranteed, these subsequent types of travel expenses are commonly deductible:

• Laundry expenses occurred during business travel.
• Transportation costs incurred in travelling from your personal home to a client site.
• Fuel and other automotive costs you pay while working at the client’s location.
• Meals and hotel costs.

Also note, you cannot incur your travel expenses for reasons which are personal, but instead you must incur them in delivering your services to your clients. There is no concrete rule on when a travel expense is related to business. Now, owing to this particular guideline, you are not able to claim deduction for the cost of your everyday commute between your personal home and the business office. This travel is considered to be a personal expense.

You will need to journey a substantial distance in order to claim deductions on your travel expenses. During the trip, you’ll have to leave your main worksite, or tax home,. And, you will need to travel more than a short pace from your workplace to meet a customer. This generally means that you have to travel beyond the city where your business is located or, for smaller towns, the surrounding area. You need to also travel for such a length of time that you are away from your tax home for longer than a typical work day. Frequently, this means that you’ve travelled for such a long period of time that you’ll need to rest or even stay overnight.

Yet keep in mind, you can’t be away from your tax home for too long a length of time, otherwise you might not qualify for the travel expense tax deductions. You can write-off travel expenses while working temporarily away from your tax home. But, when you provide services at the client site for unspecified period of time, you may not be able to claim the deduction. This usually means that you are permitted to stay at a customer site and claim business travel expense deductions for no more than twelve months. Now when you do reasonably anticipate you will work there for more than a year, however, you can not claim tax deductions for any future expenses of travelling to that work location.Finally, successfully claiming travel expense deductions requires recordkeeping. To support your deduction, you will need to keep all related receipts. And it is helpful to use a log, notebook, or another type of written record to track your expenses.

Contact your accountant for for any clarifications.

As soon as you initially put in your Offer in Compromise request, you should additionally submit form 433-A. This form is actually what the Internal Revenue Service will use in ascertaining whether or not you qualify for an Offer in compromise. The 433-A accounts for disposable income and equity in assets. If it is determined that you will not be capable to repay your tax debt in full, you might be able to proceed with the Offer in compromise appeal.

Personal Information and Employment Information

Section 1 is the first section of the 433-A form. This segment is meant for communicating personal information that regards yourself and your family. If you are in fact married, you’ll have to provide information about yourself and your partner/spouse.

In the second section, or Section: 2, impart employer information for yourself and your spouse, if applicable. You will have to write “self” in the line 4a, if you are the business owner. Your self-employment details is going to be addressed in a different section.

Other Financial Information: Section 3

lawsuit and predictable modifications in your financial state.

Line 6: In the event that you are involved in any court action, either as a plaintiff or the pursued, record the docket details here on this line. You do not need to relay proceedings which haven’t as of yet ended up filed in the court, despite whether or not you plan to filing a suit.

In Line number 8, you’ll be asked if you expect an increase or decrease in earnings. In general, it’s wise not to record any increases unless you are are absolutely certain of the increase. Some situations when you might account for such a change like: new cash flow contracts, notice of court payouts, or acknowledged in ink acknowledgment of pay increases. The Internal Revenue Service may well consider an anticipated raise while calculating your offer amount, so don’t include suppositional pay increases.

Personal Asset Information: Section 4

List all personal monies and equity property which you have ownership of in section 4. This includes bank account, credit card and property information, as well as life insurance policy information.

Line 11: Report cash you at present have in hand. Because the amount of cash you have may teeter on a day-by-day basis, report the average amount you typically carry in pocket. This will allow you to impart a more genuine telling.

Lines 12a and 12b: Make use of these blanks to note any savings or checking accounts for which you are the owner. If you can claim ownership to more accounts than two accounts, give any additional accounts on a separate sheet of paper and fix it to your 433-A. You need to provide bank statements to the Internal Revenue Service for each accounts Line 12a, 12b: here you will give any checking or savings accounts info. If you have more than two accounts for banking, you will have to list the accounts in addition on a separate sheet of paper stapled tothe 433-A form. You are also to provide the correlating statemnts to the Internal Revenue Service for each bank account that you own. It is best to list the amount shown in the most recent bank statement provided.You want it so that the Internal Revenue Service can see the form entries correspond with the numbers in the supporting pages.

Lines 13a through 13d: Use these lines to report any investments you own, such as stocks, bonds and retirement accounts. Include 401k accounts even if you are not fully vested in the plan.

Lines 14a and 14b: List any credit cards you have with readily available credit on each.

On lines 15a through 15g, report life insurance policies with the corresponding cash values. Do not list term life plans information. The Internal Revenue Service is interested singularly in whole life coverages.

In line 16 you are to state any assets that you have transferred, given or sold to a person or perhaps business for below the full value within the past decade. The IRS employs this information in order to confirm whether you have dropped assets in the recent past to sidestep having liquid equity available, which you could’ve used to honor debt. The Internal Revenue Service asks for this data to determine if you’ve got rid of assets lately to avoid having liquid equity available to reimburse your debts.

In line 17 through 17c: disclose real estate which you own. In case you do not personally own real estate, provide your street address along with your landlord’s name and location. In lines number 18a through 18c: present any transportation assets you possess. This list will have to include, vehicles such as watercrafts and motorcycles and trailers and campers. If any of theses assets are attached by a loan, you’ll want to reveal those notes in the section. Look on the web for a aid to provide fair market prices.

Line 19a and 19b: List the type and value of your personal assets you own. Personal assets include home furnishings, domestic goods, collectible merchandise and precious jewelry. When you mark the worth of the effects, inventory the estimated liquidation worth. A pretty simple technique to establish of the liquidation value for these items is to guesstimate just what the goods would sell for in a quick-sell platform, which includes a yard sale or public sale. Do not mark the original purchase expense as a value. The Internal Revenue Service does not generally demand that you sell off your personal objects that is unless you currently have a lot of luxury effects. The Internal Revenue Service additionally allows a individual exemption amount of $7,900 for the value of items in this particular grouping.

Expense Statement and Monthly Income

This statement is situated on page 4 of Form 433-A. Inside this section, you will have to report your regular monthly revenue and expenses from all sources. If you’re a sole proprietor, you will need to complete pages number 5 and 6 of the 433-A prior to concluding this statement on page 4.

Income: this is the section where you’ll provide your gross earnings. Gross wages are your earnings before deductions. For those collecting rental income or self-employed, you’ll report net income. Net income is revenue you recieve minus operating expenses. Use the guide beneath the statement to help with calculations.

In the Expenses Section, you’ll record monthly, regular expenditures, which includes taxes and deductions.

Self-Employment: Pages 5 & 6

If you’re self-employed, you’ll need to present basically the same type of data with regard to all of your work activities you document for yourself personally. That includes business assets data, such as related equipment, accounts receivable and revenue streams details. You must likewise submit how many staff members you have and the frequency of payroll. Submitting Form 433-A

Now that you’ve gone through and completed the 433-A, you’ll have to remember to enclose paperwork that confirm the claims you’ve set therein. Usual docs include up to date bank statements and paystubs, recent billing statements, and monthly statements and payoff balance information regarding loans.

Yes, there is a good deal more of the Offer in Compromise Guide:Accountants & Tax Preparers in Fremont

The Irs allows for some different installment agreement options such as partial-payment installment plans or full-payment installment plans. Full-pay plans include the streamlined installment agreement, the guaranteed installment agreement, and the financially verified installment agreement. The repayment option you are eligible for is dependent upon fiscal facts you provide to the Internal Revenue Service, but monthly repayments for the different plans are established differently than Offer in compromise settlement amounts.

In this discussion we’ll cover the repayment plan options and assist you identify which option of payment is best suited for you.

Guaranteed Installment Agreeement Option

The guaranteed installment agreement plan is available only if your owed balance is under $10,000 and your installments will pay in full your full Irs balance within a period of three years. The Internal Revenue Service must agree to this option if you conform with the requirements.

The Streamlined Installment Agreement Option

The streamlined installment agreement is is an option of repayment if your balance owed is under $25,000 and you consent to full-pay your full IRS balance in the period of 5 years. This full balance considers your principal tax liability, plus interest and penalty accruals for each tax year you have a balance on.

Determining Your Monthly Payment Installments

To calculate the lowest amount the Internal Revenue Service will accept monthly, divide the full amount owed, including the interest and the penalties, by fifty. The resulting number will show the base amount that must be paid. The remaining 10 months of the 60-month payment plan is set aside for interest. If you do not have sufficient disposable monthly income to grant a 60-month payment plan, you may qualify for a partial pay plan in lieu.

Installment Agreement Partial Payment Plans

A partial pay installment agreement is a plan that makes concessions for you to make payments of only what you can manage on a per month basis, even if the amount is under what the Internal Revenue Service typically consents to on an installment agreement plan. You must make payments for the remainder of the period the Irs can by law collect debt, which might be for a period longer than 60 months or 5 years. And when the collection statute of limitations arrives at its expiration date, any balance which remains is essentially written off by the Internal Revenue Service. The payment option is a partial payment installment agreement because you never will pay the total balance you owe.

Collection Statute of Limitations

You or your power of Attorney may contact the IRS and request the Collection Statue Expiration Date (CSED) for each balance-due period. A statute for collection exists in each tax year you have a tax debt balance. The statute begins when you file your tax return, or upon the date in which a principal tax balance is assessed, whichever is the more recent. The statue will usually end within 10 years, however, there are certain instances when a collection statute can extend passed 10 years.

How to Determine Payments

Your partial pay installment agreement is dependent upon your disposable monthly income, which is the money left each month after your expenses are paid. Figure out your disposable monthly income by the number of months that remain on your collection statute to figure the total dollar amount you are going to pay the Irs over a period of time. For example, if your disposable income is $100 and the amount of time left on your collection statute is 24 months, you will pay $2,400 total toward your tax liability. The remainder is not collectable by the Internal Revenue Service. However, you have to make these payments in set installments so you can’t offer the full amount in a single payment.

Financially Verified Installment Agreement

The non-streamlined or financially verfied agreement is assessible when your due balance is over $25,000 or when the repayment period exceeds 5 years. This agreement needs to be negotiated with the Internal Revenue Service. Complete financial disclosures are to be imparted to the Internal Revenue Service. Your monthly payment amount is based on your complete financial situation, and the Irs could require you liquidate assets in order to reduce the total balance.

Rules Applicable to all Installment Agreement Plan Options

Whatever type of payment plan you request, some basic rules are applied for obtaining and retaining your installment contract.

Offer In Compromise Rejection Period

More often than not, you are going to have to wait at least a period of sixty days post the date marked on your Offer in compromise rejection letter in order to request an installment agreement option. During this sixty-day period, your file is coded as an “Offer” case in the Irs system to allow for your sanctioned right to repeal the Offer in Compromise rejection. Irs officers are not able to change the status of your case to mark it as an installment agreement contract.

Staying Current and Compliant

Once you are on an installment agreement, you must remain up to date and compliant with the established payment arrangements and future tax commitments. This means while you are in this agreement, you will have to make all installment pay dates on time and in full, file all future tax returns on time, and pay any forthcoming balances in full and on time.

If you do not comply with the stipulations, you will default on your payment plan, and therefore be opened up to various IRS Collection Measures

Change in Financial Circumstance

If your financial circumstances change and this change stymies you from keeping your scheduled payments. Ask about a corresponding adjustment to your monthly installment payment.

The change in your financial situation should be considered permanent, or expected to last longer than one month. Examples of acceptable financial changes include loss of income, a reduction in income, divorce, the addition of a dependent or an increase in regular living expenses. The IRS will request an updated financial statement and proof of new expenses to process the modification request.

Modifications may result in your full-pay installment agreement being translated to a partial payment plan. Installment agreements are in most cases less effortless to establish with the Internal Revenue Service and incur less paperwork than an Offer In Compromise process. An installment agreement option provides a an alternative to an Offer In Compromise rejection.

Check-out the guide to offer in compromise at Tax Preparers and Quickbooks Pros